from May 4th, 2012
News
CNBC – On The Agenda
Spectrum News – Financial Planning for the New Year
From December 20th, 2016:
Raleigh — The start of the new year means making New Year’s resolutions.
And financial experts believe it’s also the perfect time to get financially fit.
Spectrum News Anchor Caroline Blair goes In Depth with Rick Gardner, a financial planner and founder of RGA Investments, on some ways we can all keep our finances in check for the future.
FOX Business – The Willis Report
Your Year-End Financial Checklist
The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next
Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation
Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans, like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios. If you are at the age when a Required Minimum Distribution (RMD) is required from your traditional IRA(s), be sure to take your RMD by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2018, that forces you into taking two RMDs next year, both taxable events.)1
Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). In years past, some business owners and executives didn’t really look into deductions and credits because they just assumed they would be hit by the AMT. The recent rise in the top marginal tax bracket (to 39.6%) made fewer high-earning executives and business owners subject to the AMT – their ordinary income tax liabilities grew. The top bracket looks as though it will remain at 39.6% for 2018 even if tax reforms pass. So, examine accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options, and certain types of tax-advantaged investments.2
Review any sales of appreciated property and both realized and unrealized losses and gains. Look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.
Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2017, meaning you can gift as much as $14,000 to as many individuals as you like this year, tax-free. A married couple can gift up to $28,000, tax-free, to as many individuals as they like. (The limits rise to $15,000 and $30,000 in 2018.) The gifts do count against the lifetime estate tax exemption amount, which is $5.49 million per individual (and therefore, $10.98 million per married couple) in 2017.3,4
You could also gift appreciated securities to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.5
Besides outright gifts, you can explore creating and funding trusts on behalf of your family. The end of the year is also a good time to review any trusts you have in place.
Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs and beneficiaries, and think about whether your insurance needs have changed.
Life events. Did you happen to get married or divorced in 2017? Did you move or change jobs? Buy a home or business? Did you lose a family member or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life as well as the way you invest and plan for retirement and wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.
Lastly, did you reach any of these financially important ages in 2017? If so, act accordingly.
Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).
Did you turn 65 this year? If so, you are likely now eligible to apply for Medicare.
Did you turn 62 this year? If so, you can choose to apply for Social Security benefits.
Did you turn 59½ this year? If so, you may take IRA distributions without a 10% early withdrawal tax penalty.
Did you turn 55 this year? If so, you may be allowed to take distributions from your 401(k) account without penalty, provided you no longer work for that employer.
Did you turn 50 this year? If so, you can make “catch-up” contributions to IRAs (and certain qualified retirement plans).1,5
The end of the year is a key time to review your financial “health” and well-being. If you feel you need to address any of the items above, please feel free to give us a call.
Investment and Insurance Products are offered through Capital Investment Group, Inc.
Member FINRA & SIPC.
The material contained on this web site should not be misconstrued as financial advice or an offer to sell any product.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – fool.com/retirement/2017/04/29/whats-my-required-minimum-distribution-for-2017.aspx [4/29/17]
2 – businessinsider.com/trump-gop-tax-reform-plan-bill-text-details-rate-2017-10 [11/2/17]
3 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes [10/23/17]
4 – turbotax.intuit.com/tax-tips/estates/the-gift-tax-made-simple/L5tGWVC8N [11/10/17]
5 – kiplinger.com/article/taxes/T055-C032-S014-4-year-end-tax-savings-tips-to-try-by-thanksgiving.html [10/17]
6 – merrilledge.com/article/ready-set-retire-8-deadlines-you-need-to-know [11/10/17]
Children’s Flight of Hope Recognized For Excellence in Transportation
Last week, I was honored to attend a banquet with Children’s Flight of Hope where the Raleigh Mayor’s Committee for Persons with Disabilities
recognized the organization for Excellence in Transportation. This award recognizes organizations that contribute significantly to the quality of life of people with disabilities through creating expanded access to transportation in Raleigh – and I can think of no organization that does this more consistently than Children’s Flight of Hope.
Children’s Flight of Hope provides air transportation for children to access specialized medical care. These children have physical and/or developmental disabilities that are caused by a variety of medical diagnoses and need medical care that is not provided in their home area, but their families do not have the financial resources to travel to the necessary care. So far in 2017, CFOH has provided more than 600 flights to 183 children worldwide.
The Mayor’s Committee for Persons with Disabilities helps people with disabilities participate in the economic and social life of the community.
An air transportation service that flies for good
How far would you travel to heal a sick child?
If you’re a parent, the answer is a no-brainer.
As a parent of 3 children of my own, there’s nothing that would stop me from trying to see my child healthy again. But the truth is, a child’s road to recovery isn’t always simple. For some families, a child’s illness is so specialized that parents are limited in how much they can actually help. That’s where Children’s Flight of Hope (CFOH) steps in.
For more than 25 years, CFOH has been flying children commercially, privately and internationally, to find the right medical care for those that need it most. But CFOH is more than just an air taxi service, and that’s why I’m honored to serve as the organization’s board chairman.
Each child that flies with CFOH becomes a CFOH child for life, and that’s because we care deeply about their path to wellness. Providing transportation is great, but offering hope to families in the midst of the most difficult season of life, is what it’s really all about.
How can you get involved?
It’s easier than you think. While CFOH flies children internationally for specialized medical care, the organization itself is based here in the Triangle, making it easier for you to get plugged in and support the cause.
If you are looking to help, start by donating a backpack care package. Before each flight, kids receive a backpack filled with travel essentials to ease their flying stresses. The backpack includes a blanket, coloring books, an aviation teddy bear and details on travel expectations. The money donated to CFOH goes directly to the backpack care packages and the air transportation itself. You’d be surprised how quickly small donations add up to make a real difference:
- $20 – Covers the cost of an aviation bear.
- $25 – Underwrites a small, fleece blanket for travel.
- $75 – Fully-stocks a backpack care package.
- $100 – Trains a flight liaison for children who require private travel.
- $500 – Covers the cost of an average commercial mission for a child and their companion.
- $5,000 – Covers CFOH’s cost for private travel missions.
Remember, the backpacks aren’t your only option. Fortunately, the Triangle community has embraced CFOH and its mission, by supporting multiple events throughout the year to help give back to children in need. Over the next few months, you’ll have the chance to join us at either of the events below. We’d be happy to see you there.
- Hops for Hope – Sept. 23, 2017 at Morgan Street Food Hall.
- A Vintage Affair – Oct. 20, 2017 at the Pavilion at the Angus Barn.
Let’s do more
When I joined the board in 2012 we flew 69 missions, mainly up and down the East Coast of the US. Yet, in just a few short years, with the help of some outstanding people, CFOH finished out 2016 with 510 flights serving children around the world.
With your help, we can do more. Let’s see how many children we can support, and what more can be accomplished in 2017.
Out-of-the-Box Ways to Pay for College
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Today’s average student borrower takes out more than $25K in loans. Education debt has reached record levels in America – more than $1 trillion. In the face of those numbers, parents and students are looking for assorted ways to pay for college without incurring big liabilities.1
In addition to grants, loans, merit-based aid and your student holding down a job, there are other ways to reduce college cost – some little recognized.
First, how expensive will college be? Can you project the total cost of your student’s college education? Assuming five years in school (which is the average for today’s undergrads) and no change in majors along the way, can a financial aid officer give you a ballpark figure? If not, an online resource such as Alltuition.com may be able to estimate it for you.1,2
Presumably, you opened a 529 plan or some other form of college savings fund for your student years ago. If those funds aren’t enough, where can you find other resources to meet a projected shortfall?
What about outright gifts of cash? If you or relatives or friends have the money, that is an option. Will you suffer gift tax consequences as a result? No. If the money constituting that completed gift is used directly to pay tuition expenses at an educational institution, that gift is not taxable. It will not cut into your annual gift exclusion amount ($13,000 for 2012) or your lifetime unified credit (currently set at $5.12 million).3,4
One caveat, however: if you make any kind of tuition payment on behalf of your student, that will be characterized as untaxed income on the FAFSA (Free Application for Federal Student Aid). That could wipe out your student’s chances of getting any need-based financial aid. This is why some families elect to put off tuition gifts until a student’s senior year.4
Can you reduce your taxable income to get your student more financial aid? You may be able to do so. If getting federal student aid is your objective, knocking down your taxable income (through moves big and little) might make a big difference.
On the FAFSA, family income matters more than family assets. Retirement account balances, net worth attributable to home values and small businesses – none of this matters, it doesn’t factor into the needs analysis. The FAFSA is used to determine the expected family contribution (EFC), which is the combination of funds that the parent(s) and student can make available for a school year. The gap between the EFC and the expected total education costs of the school year represents the level of financial need weighed in determining federal student aid.5
So the lower your EFC is, the greater your level of financial need will be – and the greater amount of federal student aid that may be available. This is why many parents and students elect to spend down their combined savings and assets set aside for college during the freshman year. With no assets left for the sophomore year (and by this same logic, subsequent academic years), eligibility for federal student aid is wide open. Of course, you may be also opening a door to potential long-term debt.
There are other ways to alter your tax picture to get your student some financial aid –aid not linked to lingering debt.
Have you heard of “tax scholarships”? No, not scholarships linked to a state tax credit (though those may be worth a look). These are de facto scholarships that you may be able to create for your student with the help of a CPA or financial advisor (and the IRS). If you can find or arrange new tax deductions this year, you can redirect that money toward your student’s college expenses. Savvy business owners and professionals often make this move.
What about untraditional scholarships? For example, CollegeNet.com currently offers a “weekly scholarship” running between $3,000-10,000. Collegians themselves decide which applicant deserves the funds. There are other such examples.1
Can you negotiate tuition? At first instinct, does that seem rude, uncouth? It may prove smart – and it is done. There are such things as tuition discounts (and grant programs) offered to those who negotiate, even those not eligible for need-based aid. If a university really wants your student, you may have some leverage.
Are you willing to go the JC route, or the online route? Going to a local junior college for the first two years of study toward a bachelor’s degree can save a student and family tuition, housing and travel and auto expenses, and maybe a little anxiety – if your student decides he or she wants to major in oceanography instead of marketing, you haven’t paid $10,000 or $20,000 a year to arrive at that conclusion.
Recognizing the costs of housing, commuting and parking permits, some colleges are offering parts of their curriculum online or in more accessible settings – for example, Virginia Tech offers introductory math courses through computer labs and the University of Minnesota’s new Rochester campus uses part of a local shopping mall to hold classes. While taking classes on a computer or at some obscure satellite campus may not give you the full university experience, it may help to reduce expenses.2
Need help with college planning? Talk with a financial professional well versed in the matter – sooner rather than later.
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Major Retirement Planning Mistakes
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Why are they made again and again?
Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations and charities. Aside from these blunders, there are also some classic financial missteps that plague retirees.
Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.
Leaving work too early. The full retirement age for many baby boomers is 66. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income.1
Some of us are forced to make this “mistake”. Roughly 40% of us retire earlier than we want to; about half of us apply for Social Security before full retirement age. Still, any way that you can postpone applying for benefits will leave you with more SSI.1
Underestimating medical expenses. Fidelity Investments says that the typical couple retiring at 65 today will need $240,000 to pay for their future health care costs (assuming one spouse lives to 82 and the other to 85). The Employee Benefit Research Institute says $231,000 might suffice for 75% of retirements, $287,000 for 90% of retirements. Prudent retirees explore ways to cover these costs – they do exist.2
Taking the potential for longevity too lightly. Are you 65? If you are a man, you have a 40% chance of living to age 85; if you are a woman, a 53% chance. Those numbers are from the Social Security Administration. Planning for a 20- or 30-year retirement isn’t absurd; it may be wise. The Society of Actuaries recently published a report in which about half of the 1,600 respondents (aged 45-60) underestimated their projected life expectancy. We still have a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.3
Withdrawing too much each year. You may have heard of the “4% rule”, a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. The “4% rule” isn’t a rule, but many cautious retirees do try to abide by it.
So why do some retirees withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures, and an inclination to live a bit more lavishly.
Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming that your retirement will be long, you may want to assign that or that investment to it “preferred domain” – that is, the taxable or tax-advantaged account that may be most appropriate for that investment in pursuit of the entire portfolio’s optimal after-tax return.
Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may be bad moves in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.
Account fees must also be watched. The Department of Labor notes that a 401(k) plan with a 1.5% annual account fee would leave a plan participant with 28% less money than a 401(k) with a 0.5% annual fee.4
Avoiding market risk. The return on many fixed-rate investments might seem pitiful in comparison to other options these days. Equity investment does invite risk, but the reward may be worth it.
Retiring with big debts. It is pretty hard to preserve (or accumulate) wealth when you are handing chunks of it to assorted creditors.
Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans”. Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.
Retiring with no plan or investment strategy. Many people do this – too many. An unplanned retirement may bring terrible financial surprises; retiring without an investment strategy leaves some people prone to market timing and day trading.4
These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – moneyland.time.com/2012/04/17/the-7-biggest-retirement-planning-mistakes/ [4/17/12]
2 – money.usnews.com/money/blogs/planning-to-retire/2012/05/10/fidelity-couples-need-240000-for-retirement-health-costs/ [5/10/12]
3 – www.forbes.com/sites/ashleaebeling/2012/08/10/americans-clueless-about-life-expectancy-bungling-retirement-planning/ [8/10/12]
4 – www.post-gazette.com/stories/business/personal/shop-smart-avoid-seven-common-errors-in-retirement-plans-635633/ [5/13/12]
Financial Question for the Retiring Homeowner
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Six questions to contemplate before the transition.
Do you see yourself retiring in the near future? In planning for that transition, you might want to consider the state of your mortgage, the state of your property taxes, and the state of your living quarters.
Could you pay off your mortgage in the next few years? If your home is paid off, great. If you are close to paying it off, think about putting whatever extra cash you can spare toward your home loan. (Not money from your retirement accounts, of course – funds from other sources.) If your mortgage balance is just too big to pay down, you can always attempt to refinance. If you can, structure your loan so that you can pay it off in what will presumably be the first part of your retirement.
Are you paying too much in property taxes? Did you know that many cities and counties make an effort to lower property tax rates for homeowners older than 65? Call or visit the office of the assessor or recorder where you live. Ask about this, and see if you qualify. Even if you don’t, by doing some online research (or gently asking a neighbor or two) you might discern that your property tax rate is too high. You can officially appeal it on your own (there are commonly forms available at city halls and county offices) or with the assistance of a real estate professional.1
What needs to be done to your residence? Wouldn’t it be nice to have a home with a yard requiring less upkeep as you age? How about a home you can safely get around in? Landscaping changes and the installation of certain senior safety features can be well worth the expense. It is wise to arrange home improvements while you are still salaried.
Should you sell your home? Some retirees are moving out of big homes into smaller quarters – yes, even in today’s market. Is that really worth doing?
While the answer to that question will vary per homeowner, some real estate analysts and financial industry professionals believe downsizing in this market may be worth it for many retirees. While home equity has diminished since 2006, they contend that it could take several more years for home values to return to anywhere near those levels – economic conditions in this decade may not create the kind of “sweet spot” the market benefited from in the 2000s.2
If you wouldn’t buy your home today because of financial, neighborhood or family factors, that is a signal that you might want to consider downsizing.
Should you take in a renter? Let’s say you love your home and you are thinking about deriving more income from it. You could optionally rent a room, a furnished basement or a guest house to … your kids, or a graduate student, or a senior living alone. Income aside, do you have a mom or dad who requires help with everyday living? It may be emotionally and even financially appropriate for that parent to move in with you.
Should you get a reverse mortgage? While the Consumer Financial Protection Bureau released a dismissive report on reverse mortgages this summer, these financial instruments may come in handy for many retirees in the coming years.3
You may be familiar with the arguments against them – their mechanics are too complex to readily understand, one spouse may not absorb all the details as well as the other spouse, people are increasingly taking them out at younger ages and sometimes using the funds for investment purposes. All that said, less than 3% of eligible homeowners arrange them.3
The size of a reverse mortgage relates to three factors: the value of the home, the age of the borrower and the interest rate on the loan. HUD-insured reverse mortgages are available tohomeowners older than 62 who have either paid off their primary residence or can easily do so via the loan.3
An income stream can result from reverse mortgages (for as long as the borrower remains in the home, of course). A lump sum or a HELOC is also possible. While the marketing of these financial instruments still leaves much to be desired, you may want to examine the option as you retire.
Rick Gardner may be reached at 919-881-1641, or contact us here.
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – www.bankrate.com/financing/retirement/get-your-home-ready-for-retirement/ [7/12/12]
2 – www.cnbc.com/id/46311497/Christakos_Getting_Ready_to_Retire_Start_by_Rightsizing_Your_Home [2/8/12]
3 – blogs.smartmoney.com/encore/2012/08/07/reversing-the-negative-view-of-reverse-mortgages/ [8/7/12]